The Tuesday Market Minute
- Global stocks trade cautiously higher ahead of the start of the third quarter earnings season, but mounting geo-political risks keep gains in check.
- Japan's Nikkei 225 surges to multi-month highs in first trading day since Friday's U.S.-China trade detente, while broader Asia markets book only modest gains.
- Global oil prices dip as weak China data, robust U.S. production forecasts offset OPEC signals for further output cuts.
- U.S. Q3 earnings kick-off Tuesday with key bank updates that could set the season's tone, but forecasts suggest the first year-on-year profit declines since Q3 2016.
- US equity futures suggest opening bell declines on Wall Street ahead of earnings from Citigroup, JPMorgan, Goldman Sachs, Wells Fargo, UnitedHealth and Johnson & Johnson.
Global stocks traded cautiously higher Tuesday, while U.S. equity futures pointed to a firmer open on Wall Street, as investors prepped for a two-day wave of bank earnings that could define the third quarter reporting season while paring risk positions amid lingering questions over the fate trade talks between Washington and Beijing.
A lack of detail in the so-called "Phase 1" portion of the current U.S.-China trade talks, which concluded Friday in Washington, as well as reports suggesting Chinese officials want more time to negotiate terms of a final settlement next month, clipped gains on Wall Street yesterday and kept markets in Asia in check for much of the Tuesday session.
Risk appetite was further eroded by stalled Brexit talks in Europe, where officials are growing increasingly skeptical that an exit agreement can be reached prior to this week's leaders' summit in Brussels, which begins Thursday, and the threat of U.S. sanctions on Turkey following its military incursion into Northern Syria.
Much of the market's focus today, however, will center on the unofficial start to the U.S. earnings season on Wall Street, with third quarter reports from Dow components UnitedHealth (UNH - Get Report) and Johnson & Johnson (JNJ - Get Report) alongside major U.S. lenders including Citigroup (C - Get Report) , JPMorgan Chase (JPM - Get Report) , Goldman Sachs (GS - Get Report) and Wells Fargo (WFC - Get Report) .
Data from I/E/B/S Refinitiv suggests collective third quarter earnings for the broadest benchmark of U.S. stocks will fall around 3.2% from the same period last year, to around $337.9 billion on a share-weighted basis. FactSet data has the third quarter decline forecast at 4.1%.
Financial sector earnings are likely to fall 1.2% from last year, Refinitiv estimates, cementing the worst quarter in three years. However, FactSet is forecasting a fourth quarter rebound of 14.7% and a collective bottom line of $62.3 billion.
JPMorgan posted better-than-expected third quarter earnings as revenues from its fixed income division, as well as net interest income, surprised to the upside, while UnitedHealth boosted its full-year profit forecasts, as Optum revenues continue to pace topline growth for the biggest U.S. healthcare insurance group after it topped third quarter forecasts.
U.S. equity futures are pointing to a solid start to the session ahead of the heavy earnings slate, with contracts tied to the Dow Jones Industrial Average indicating an 83 point gain while those linked to the S&P 500 are guiding to a 8 point advance for the broader benchmark.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.15% lower in early European trading at 98.30, which benchmark 10-year Treasury notes were need trading just under 1.7% following yesterday's Columbus Day holiday closure.
European stocks jumped higher at the start of trading in Frankfurt, with the Stoxx 600 rising 0.4% by mid-day trading, while Britain's FTSE 100 slipped 0.14% in London as the pound held at 1.2650amid EU signals suggesting Boris Johnson's latest Brexit deal offensive may not find enough support in Brussels.
Overnight in Asia, Japan's Nikkei 225 returned from Monday's holiday with a 1.87% gain, as investors took their fist chance to react to Friday's U.S.-China trade agreement, while the broader MSCI ex-Japan index was marked 0.07% higher heading into the close of the session.
Global oil prices continued to extend declines, however, amid lingering questions over the detail of Friday's U.S.-China trade detente as well as data from Beijing that showed the weakest factory gate prices in the world's second-largest economy in three years.
Brent crude contracts for December delivery, the global benchmark, were seen 57 cents lower from Monday's New York close to trade at $58.78 per barrel while WTI contracts for November delivery, which are more tightly linked with U.S. gasoline prices, were marked 57 cents lower at $53.02 per barrel.